Happy 2013: Krispy Kreme Up 19%

By Sam Mamudi

Here’s an interesting stock move — shares of Krispy Kreme Donughts (KKD) are up 10% today, 19% in 2013, and about 20% for the week:

So far, I haven’t been able to find anything to explain the move, though I’d note that including this week’s rise the stock is up 70% in the past six months.

Update: Longbow Research initiated coverage of Krispy Kreme this morning, with a Buy rating and prices target of $15, which is a further 35% above today’s trading price:

KKD could generate meaningful profit upside from its company-owned stores in coming years. While same-store and new store builds represent KKD’s best top-line growth drivers, we believe the company’s greatest earnings leverage opporunity lies in its ability to improve profitability within its Company Stores segment. This business reported an average annual operating profit of ~$35M during FY01-04 but this contribution fell sharply to $10.5M in FY05 and an operating loss in three of the next four years through FY09. Segment profitability improved to essentially break-even results cumulatively during FY10-12 and into positive territory YTD in FY13. We are modeling only a modest operating profit improvement from Company Stores to $8.3M in FY14 (versus $7.2M forecasted for FY13) and $9.3M in FY15, which equates to a low single-digit margin. If KKD is able to generate even modest upside to our forecasts and achieve a 5% operating profit margin, this would drive $0.10+ of annual EPS upside in FY14 and FY15.

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